Keeping an eye on the stock market

12 May Keeping an eye on the stock market

Mortgage bonds are continuing to drift lower, while the stock market continues to set new record highs. In glancing at the charts, there is strong support just below current bond prices. We are hopeful this support will hold. However, there is still the chance that bonds will break below, which will pushmortgagerates higher. The strength of the stock market makes it difficult for bonds to gain traction and move higher. We may have to wait for stocks to weaken before bonds can recover their losses of the past few days.

Home prices climbed higher in 74% of U.S. cities in the first quarter of 2014. This is less than last year, and less than what the market anticipated. This provides further evidence that the housing market is cooling. Housing demand has slowed in the past year, fueled by highermortgagerates, tighter inventory and reduced affordability. A slowdown in the housing market can be positive for a healthy long-term economy, as a continued climb higher in home prices makes it more difficult for many to purchase homes.

Withmortgagebonds sitting on support, we are hopeful that bonds will bounce higher. If you are able to watch the charts closely, go ahead and float as long as bonds stay at current levels. However, should they break below support, lock quickly, as a move lower can happen quickly. Also, keep your eye on the stock market. If stock prices continue to move higher, bonds will be pressured lower. A correction lower in the stock market seems long overdue. When that does happen, bond prices will likely move higher.